Fueling the healthcare growth in China is a government-backed $129 billion investment that began in 2009 and is slated to last three years. In August, China's Ministry of Finance said it would allocate another $1.85 billion to local healthcare reform initiatives designed to provide “across-the-board” healthcare services, especially in rural areas, according to a report by the state news agency Xinhua. The reforms are focused on community and rural service, drugs, health insurance, public hospitals and public sanitation. And in December, China's State Council asked governments at all levels to simplify procedures to facilitate private and foreign investment in healthcare as part of that effort, according to Xinhua.
The money is being spent on a healthcare industry that already is sizable. China had more than 13,000 general hospitals as of 2008, according to the National Bureau of Statistics of China's 2009 China Statistical Yearbook. And the World Health Organization estimated that in 2009, there were nearly 1.9 million physicians and 1.3 million nurses and midwifery personnel (See chart). Moreover, China has some huge hospitals and is building more, including a 1,500-bed hospital on the outskirts of the Shunde district of Foshan, the First People's Hospital of Shunde (Jan. 25, 2010, p. 32).
The scale and depth of the change in China is creating a strong need for outside expertise. “The pace of the growth of the (healthcare) market in China is staggering,” says Leocadia Zak, director of the USTDA. And because healthcare is so diverse, with an array of supplies and devices being purchased and used in a variety of quantities, it's important to have private industry play such a large role in the effort, she says. Participants in the industry will be able to identify what is needed most and where.
The partnership also recently created working groups, which are open to any interested companies and will allow smaller organizations to participate, Zak says. The groups will focus on disease prevention, health management, quality and safety; emergency response; healthcare financing; healthcare information technology; hospital management systems; rural healthcare and traditional Chinese medicine.
Six U.S. companies were named to the partnership's steering committee in February, with the goal of putting together working groups that will collaborate with Chinese representatives on establishing priorities and setting goals, says Thomas Hardy, director for congressional affairs and public relations at the USTDA. The companies named to the steering committee were: Abbott Laboratories, Chindex International, General Electric Co., IBM Corp., Johnson & Johnson and Medtronic, all of which were among the supporting organizations when the partnership was announced.
Meanwhile, the partnership, through AmCham-China, is advertising to fill the position of executive director, seeking someone with 10 years' experience in healthcare and a track record of working with the Chinese government.
“This came together very quickly,” says Trevor Gunn, senior director of international relations for medical devicemaker Medtronic, in reference to the partnership's creation. Medtronic, which has been operating in China since the 1970s, played an active role in getting the partnership going, Gunn says. “We have 1,000 employees in China,” Gunn says. “This is a very, very important market for Medtronic.”
Similarly, China is the No. 2 market behind the U.S. and Canada for Motorola Solutions' healthcare business, says Robert Armstrong, global lead for healthcare and education for Motorola Solutions. Motorola is one of the partnership's initial participating companies.
China is attractive to U.S. companies operating in a variety of healthcare sectors outside of medical devices, including information technology, drugs, distribution and hospital operations.
U.S. distributor Cardinal Health acquired what it said is China's largest pharmaceutical importer for $470 million, according to a November announcement. The company, which has operated in China since 1993, bought Zuellig Pharma China, a privately held company operating in China under the name Yong Yu. As a result, Cardinal's Chinese distribution network covers 31 of the 34 provincial-level administrative units in China through a direct-to-customer distribution network and comprehensive network of wholesalers, according to the company.
But selling in China's market carries obstacles even for U.S. companies already doing business there. U.S. investors reacted so negatively to an April 2010 agreement by medical research services company Charles River Laboratories International to purchase WuXi PharmaTech for $1.6 billion, that the company canceled the deal in July, paying WuXi a $30 million breakup fee to do so. A concern cited in news reports, along with the deal's price, was that it wouldn't be a good strategic fit.
One of the challenges companies face is that China still has a preference for buying locally made products, according to a report on a survey undertaken by the American Chamber of Commerce in Shanghai, a supporting organization of the partnership. Based on the survey, 55% of healthcare companies found that a regulatory preference is given to local companies, the highest of any industry in the survey, according to AmCham-Shanghai's China Business Report 2010-2011.
Moreover, traditional Eastern medicine is a major component of care in China, and Western-focused products won't necessarily take that difference into account. Executives at IBM recently attacked that problem in a project helping the Guangdong Hospital of Traditional Chinese Medicine, Guangzhou, create a unified electronic health-record system. The system had to incorporate traditional Chinese medicine practices with Western practices, and help caregivers establish which method is the best way to treat someone, says Dan Pelino, general manager of healthcare and life sciences for IBM.
Given the strong interest by U.S. companies to sell products in China and the country's surging healthcare needs, business officials in both the U.S. and China were eager to get the partnership up and running. The governments involved were supportive, Medtronic's Gunn says. “It received quite high-level—I don't know if you can get any higher—attention,” Gunn says. Playing an important role for the U.S. government in its formation was the USTDA, which Gunn calls a small but “extremely effective” agency.
Its main purpose is to encourage exports of U.S.-made products. The agency estimates that every $1 it spends in efforts around the globe results in $47 in added U.S. exports. While the USTDA has worked heavily in energy over the years, healthcare is not a totally new arena.
The USTDA cites on its website examples of healthcare projects it has sponsored in nine countries including China. In India, the agency awarded a $284,000 grant to fund a study on the construction of a 200-bed hospital offering specialized healthcare services in cardiology, nephrology and trauma. In Kenya, the agency provided a $396,000 technical assistance grant to a hospital in “updating a strategic plan for improving its management structure, procuring new equipment, and computerizing and networking key divisions,” according to the website.
In China, the agency awarded two 2009 healthcare grants worth a total of $865,000 in the Sichuan Province, the area in western China hit hard by an earthquake in 2008 that killed an estimated 70,000 people. About $571,000 was awarded to design a provincewide, universal healthcare system on an electronic healthcare platform, according to a news release. A separate grant of about $294,000 was awarded to fund a program designed to educate emergency medical technicians.
Geoffrey Jackson, director for policy and program and regional director for East Asia and Eurasia region at the trade agency, says the USTDA's role in this kind of partnership is more as an organizer, with most of the funding coming from the private sector. “We serve as a convener and a catalyst,” Jackson says.
Other corporate participants in the partnership at the launch were: 3M, Cisco Systems, Intel Corp., Microsoft Corp. and Pfizer.
Supporting organizations included the Alliance for Healthcare Competitiveness, an employers group; the Pharmaceutical Research and Manufacturers of America; and the U.S.-China Business Council.
“This partnership will provide good opportunities to appropriately promote U.S. exports as well as highlight the importance of the private sector and governments working collaboratively to improve health systems and patient access to lifesaving and life-enhancing goods and services,” Chip Davis, PhRMA executive vice president for advocacy, says in a news release after the partnership was unveiled.
The USTDA has assembled partnerships with China previously in energy and aviation, both of which share some traits with healthcare in that they are fundamental to the normal operation of the country and focused heavily on safety. Healthcare was chosen as the third partnership as a result of the business community contacting the agency following the success of the first two partnerships, Zak says.
The aviation partnership, called the U.S.-China Aviation Cooperation Program and established in 2004, is in its fifth phase of operation. The aviation partnership produced more than $700 million in U.S. exports to China in the first four phases and contributed to a system of regulations and processes that will be able to support a larger aviation sector in China, according to the USTDA.
The latest phase is to include the creation of an executive management development training program, the creation of a consultancy for sustainable best practices at airports and training for air traffic management executives.